Skyway jackpot for city

Lease deal to bring $1.82 billion

The Chicago Skyway, a financial albatross for the late Mayor Richard J. Daley when he built it more than four decades ago, has become a golden goose for his son the mayor.

In a windfall that comes at a critical time for the cash-strapped city, Mayor Richard M. Daley announced Friday that a Euro-Australian joint venture has agreed to pay a whopping $1.82 billion--with the money upfront--to lease and operate the skyway for the next 99 years.

But the bad news for motorists is that the deal, which is expected to get quick City Council approval by the end of the year, could translate into higher tolls.

Under terms of the agreement, the current $2 charge for autos could be increased to $2.50 until 2008; $3 until 2011; $3.50 until 2013; $4 until 2015; $4.50 until 2017; and $5 starting in 2017. Further raises would be limited to 2 percent a year or the rate of inflation, whichever is greater.

Limits on commercial-vehicle tolls would be similar to those on cars. But the agreement would allow a 40 percent increase in daytime tolls if the skyway's operators reduce the levy between 8 p.m. and 4 a.m. to encourage use by truckers during off-peak hours.

Though public highways have been acquired by private companies elsewhere in the world, Daley said the skyway deal "is the first of its kind in the United States, and we expect it to be copied by other cities."

Within 90 days of the signing of the contract, the city must receive the entire $1.82 billion, officials said.

Officials said the new operators would be required to comply with "detailed operating standards" designed to ensure proper maintenance and safe operations over the term of the agreement.

And they would be free to make improvements, said city Budget Director John Harris.

The joint venture has discussed adopting technology similar to the Illinois State Toll Highway Authority's I-PASS system to collect tolls electronically, eliminating the need to wait in grille-to-tailpipe lines, Harris said.

Chicago police would continue to patrol the skyway under the proposed agreement.

The winning bidder is Cintra-Macquarie Consortium, a venture whose members have operated more than 30 toll roads with more than 1,000 miles of pavement, including an expressway that serves metropolitan Toronto.

Some of the money from the huge Chicago transaction, or more likely the investment income that the money generates, may be used to reduce by a small amount the $220 million budget shortfall that the city faces next year.

"I will be talking to the budget director about just how much will be put into the corporate budget," said Ald. William Beavers (7th), chairman of the council's Budget Committee. "I think after we work it out, we might not have to go with a property tax (increase)."

But a long list of other possible revenue enhancements, from a .25 percentage point increase in the city sales tax to a new tax on water and sewer bills, is expected to stay on the table as Daley determines how to wipe out the remainder of the projected 2005 deficit.

"I'm sure that some people will be demanding that we use all of the skyway proceeds to eliminate any budget shortfall, and maybe even begin some new spending programs," the mayor said at a news conference at O'Hare International Airport before boarding a plane for a Far East trade mission.

"So I want to make it clear that, once the deal is concluded, we will act responsibly and prudently with these funds.

"I believe it would be fiscally irresponsible to use all of the money at one time," Daley said. "If we use the funds wisely, we can protect our taxpayers and our city's financial situation for both the short term and the long term."

Some of the money will be used to pay off $430 million in existing debt on the 7.8-mile highway, and some will be used to reduce the city's nearly $5 billion in general-obligation-bond debt as city officials study how to use the rest, Daley said.

In August, Moody's Investors Service reduced its ratings outlook for Chicago from stable to negative, citing the city's projected 2005 budget shortfall, use of debt to pay day-to-day costs and a paper-thin fund balance, or operating expense reserve.

The outlook could be changed if the city uses the skyway proceeds wisely, said Ted Damutz, a Moody's vice president.

Paying down debt frees up money for operations, and replenishing badly depleted reserves "puts the city in a better position to weather unforeseen hiccups in the economy," said John Kenward, senior credit analyst with Standard & Poor's.

"Mayor Daley has taken a smart and prudent financial step," said Laurence Msall, president of the Civic Federation, a tax watchdog group. `We have long advocated that the city pursue skyway privatization as a way to help Chiago significantly reduce its long-term operating and maintenance obligations."